Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms
ABSTRACT This study investigates whether Brazilian loss-making firms manage deferred income tax as a form of big bath strategy. "Big bath” is a strategy in which a firm manages earnings by intentionally recording large non-recurring losses. We found original evidence supporting the hypothesis o...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Universidade de São Paulo
2019-03-01
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| Series: | Revista Contabilidade & Finanças |
| Subjects: | |
| Online Access: | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772019000200268&lng=en&tlng=en |
| _version_ | 1818749412568989696 |
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| author | Alex A. T. Rathke Amaury José Rezende Rafael Moreira Antônio Marcelo Botelho C. Moraes |
| author_facet | Alex A. T. Rathke Amaury José Rezende Rafael Moreira Antônio Marcelo Botelho C. Moraes |
| author_sort | Alex A. T. Rathke |
| collection | DOAJ |
| description | ABSTRACT This study investigates whether Brazilian loss-making firms manage deferred income tax as a form of big bath strategy. "Big bath” is a strategy in which a firm manages earnings by intentionally recording large non-recurring losses. We found original evidence supporting the hypothesis of big bath through the managing of deferred taxes under CPC 32/IAS 12. Deferred tax expenses can be used as a tool for reducing earnings because of the subjectivity and timing involved. To analyze the excess of deferred taxes, we propose a particular research strategy that is based on the increased homogeneity of accounting standards and tax regulation in Brazilian listed firms. This analysis provides new evidence of big bath adjustments that was never described before in the literature. We analyze 226 Brazilian listed firms for the 2011-2015 period. We designed a linear model to estimate deferred tax excess that is based on the conditional independence between treatment and effect under accounting standard CPC32/IAS 12. For our baseline analysis, we used least squares with controlling covariates. We also used two-stage least squares to control for omitted variables bias. This paper finds evidence that Brazilian firms can manage deferred income tax as a form of big bath. Results indicate that loss-making firms disclose significantly higher excesses of net deferred tax expenses, and that these excesses increase with losses. |
| first_indexed | 2024-12-18T04:03:22Z |
| format | Article |
| id | doaj.art-d20e786a68d74dc78adc29a4205e3aa0 |
| institution | Directory Open Access Journal |
| issn | 1808-057X |
| language | English |
| last_indexed | 2024-12-18T04:03:22Z |
| publishDate | 2019-03-01 |
| publisher | Universidade de São Paulo |
| record_format | Article |
| series | Revista Contabilidade & Finanças |
| spelling | doaj.art-d20e786a68d74dc78adc29a4205e3aa02022-12-21T21:21:39ZengUniversidade de São PauloRevista Contabilidade & Finanças1808-057X2019-03-01308026828110.1590/1808-057x201806340S1519-70772019000200268Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firmsAlex A. T. RathkeAmaury José RezendeRafael Moreira AntônioMarcelo Botelho C. MoraesABSTRACT This study investigates whether Brazilian loss-making firms manage deferred income tax as a form of big bath strategy. "Big bath” is a strategy in which a firm manages earnings by intentionally recording large non-recurring losses. We found original evidence supporting the hypothesis of big bath through the managing of deferred taxes under CPC 32/IAS 12. Deferred tax expenses can be used as a tool for reducing earnings because of the subjectivity and timing involved. To analyze the excess of deferred taxes, we propose a particular research strategy that is based on the increased homogeneity of accounting standards and tax regulation in Brazilian listed firms. This analysis provides new evidence of big bath adjustments that was never described before in the literature. We analyze 226 Brazilian listed firms for the 2011-2015 period. We designed a linear model to estimate deferred tax excess that is based on the conditional independence between treatment and effect under accounting standard CPC32/IAS 12. For our baseline analysis, we used least squares with controlling covariates. We also used two-stage least squares to control for omitted variables bias. This paper finds evidence that Brazilian firms can manage deferred income tax as a form of big bath. Results indicate that loss-making firms disclose significantly higher excesses of net deferred tax expenses, and that these excesses increase with losses.http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772019000200268&lng=en&tlng=enearnings managementbig bathdeferred taxesIAS 12CPC 32 |
| spellingShingle | Alex A. T. Rathke Amaury José Rezende Rafael Moreira Antônio Marcelo Botelho C. Moraes Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms Revista Contabilidade & Finanças earnings management big bath deferred taxes IAS 12 CPC 32 |
| title | Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms |
| title_full | Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms |
| title_fullStr | Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms |
| title_full_unstemmed | Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms |
| title_short | Last chance for a big bath: managing deferred taxes under IAS 12 in Brazilian listed firms |
| title_sort | last chance for a big bath managing deferred taxes under ias 12 in brazilian listed firms |
| topic | earnings management big bath deferred taxes IAS 12 CPC 32 |
| url | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772019000200268&lng=en&tlng=en |
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